We expect decent 1QFY13 results from Top Glove, which is likely to release its quarterly results this week. We see its bottomline getting a boost from easing raw material prices and a stable USD/MYR. Despite a drop in ASPs, we think the company’s EBITDA margin should remain healthy as raw material costs have dropped sharply. Meanwhile, we will await the outcome of the meeting of the top three rubber-producing countries this month. For the time being, we are keeping our BUY call on Top Glove, with our FV unchanged at RM6.25.
Good earnings possible. Given the easing of raw material prices and the stabilising of the USD/MYR exchange rate, Top Glove may be set to report commendable results in 1QFY13, for which the numbers may be released on Thursday. On a y-o-y basis, we think the company may be able to chalk up as much as a 65%-70% expansion in bottomline, but may see a lower q-o-q net profit as the group utilised its tax benefit to mark down the tax rate to a mere 2.7% in 4QFY12.
Slower topline growth, but margin to stay firm. While the decline in raw material prices may result in weaker average selling prices (ASPs), we believe the company should be able to reap a robust EBITDA margin of approximately 14% in view of the steep decline in raw material costs.
Expansion plans on track. Top Glove’s expansion plans are on track, with each of its three new factories expected to come on stream in April, June and August 2013 respectively. This will boost its annual production capacity to 44.8bn pieces p.a. Elsewhere, we also learnt that its upstream venture is making good progress, although the benefits from this venture will be apparent only over the longer term.
No spring in rubber prices. Rubber prices continued to slide amid sluggish demand despite attempts by the world’s top three rubber-producing countries to support prices. Representatives from these countries are expected to convene sometime this month to discuss support measures. As we await its outcome, we are maintaining our existing assumptions for rubber/latex prices.
Maintain BUY. We still like Top Glove’s leadership in the medical gloves industry as well as the group’s solid and sustainable long-term expansion plans. Hence, we are maintaining our BUY recommendation, with our FV pegged at RM6.25, based on a 18.7x FY13 PE.
Good earnings possible. Given the easing of raw material prices and the stabilising of the USD/MYR exchange rate, Top Glove may be set to report commendable results in 1QFY13, for which the numbers may be released on Thursday. On a y-o-y basis, we think the company may be able to chalk up as much as a 65%-70% expansion in bottomline, but may see a lower q-o-q net profit as the group utilised its tax benefit to mark down the tax rate to a mere 2.7% in 4QFY12.
Slower topline growth, but margin to stay firm. While the decline in raw material prices may result in weaker average selling prices (ASPs), we believe the company should be able to reap a robust EBITDA margin of approximately 14% in view of the steep decline in raw material costs.
Expansion plans on track. Top Glove’s expansion plans are on track, with each of its three new factories expected to come on stream in April, June and August 2013 respectively. This will boost its annual production capacity to 44.8bn pieces p.a. Elsewhere, we also learnt that its upstream venture is making good progress, although the benefits from this venture will be apparent only over the longer term.
No spring in rubber prices. Rubber prices continued to slide amid sluggish demand despite attempts by the world’s top three rubber-producing countries to support prices. Representatives from these countries are expected to convene sometime this month to discuss support measures. As we await its outcome, we are maintaining our existing assumptions for rubber/latex prices.
Maintain BUY. We still like Top Glove’s leadership in the medical gloves industry as well as the group’s solid and sustainable long-term expansion plans. Hence, we are maintaining our BUY recommendation, with our FV pegged at RM6.25, based on a 18.7x FY13 PE.
Source: OSK
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